INTEGRITY INTERNATIONAL INC v. HP INC

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Supreme Court, Albany County, New York.

INTEGRITY INTERNATIONAL, INC., d/b/a Tarrenpoint, Plaintiff, v. HP, INC., and Hewlett Packard Enterprise Company, Defendants.

906750–17

Decided: February 09, 2018

Thorn Gershon Tymann & Bonnani, LLP, Matthew H. McNamara, of Counsel, 5 Wembley Court, New Karner Road, PO Box 15054, Albany, New York 12205, Attorneys for Plaintiff. The Kindlon Law Firm, PLLC, Lee C. Kindlon, of Counsel, 52 James Street, Albany, New York 12207, Attorneys for Defendants

In this action, plaintiff Integrity International, Inc. asserts causes of action against defendants HP, Inc, and Hewlett Packard Enterprise Company for breach of contract, account stated, breach of duty of good faith and fair dealing, unjust enrichment, and fraudulent inducement. Defendants move to dismiss the complaint on the grounds that (a) this Court cannot exercise personal jurisdiction over them because plaintiff waived the forum selection clause in the parties' contract and they lack sufficient contacts with the State, and (b) New York is an inconvenient forum. Alternatively, defendants move to dismiss as duplicative of plaintiff's breach of contract cause of action the causes of action for unjust enrichment and fraudulent inducement.

The parties' contract contains a valid forum selection clause designating New York State courts as the forum for an action on the contract. Plaintiff did not waive the right to enforce the forum selection clause. Thus, defendants consented to personal jurisdiction in New York. The inconvenience defendants claim they will be subjected to by trial of the action in New York is insufficient to overcome their bargained-for contractual obligation to try the action here. Defendants' motion to dismiss the cause of action for unjust enrichment is premature. And the cause of action for fraudulent inducement is not duplicative of the breach of contract cause of action. Defendants' motion is therefore denied in its entirety.

Background

Starting in 1994, plaintiff provided to defendants “content solutions” under standard services contracts. The two most recent contracts, executed in 2011 and 2014, each contained an identical forum selection clause that required that “[a]ny dispute that may arise in connection with the interpretation or implementation of this Agreement shall be submitted to the ordinary courts of New York.”

In July 2017, plaintiff commenced an action in the United States District Court for the Northern District of New York, asserting causes of action for account stated, breach of contract, breach of duty of good faith and fair dealing, quantum meruit/unjust enrichment, and fraudulent inducement. The complaint alleged that “[v]enue is proper ․ and is mandatory in New York because the parties entered into a contract with a mandatory forum-selection clause requiring litigation in the ‘ordinary courts of New York.’ ”

Defendants moved to dismiss the action and transfer it to the District Court for the Southern District of Texas based on improper venue and lack of personal jurisdiction in New York. Plaintiff stated in a letter to the District Court that it did “not oppose [d]efendants' motion to the extent it seeks dismissal of [p]laintiff's complaint” (US Dist Ct, ND NY, 1:17–cv–00794, at 2, Hurd, J., 2017). In November 2017, the District Court granted the motion in part, dismissing the complaint, but denying defendants' transfer request. The court held that the forum selection clause did not provide a basis for jurisdiction in that court because, “[a]s a matter of contract interpretation, when a contract term refers to the courts ‘of’ a certain state or county, it is a marker of sovereignty rather than geography, and therefore only state courts are implicated” (id. at 5–6 [internal quotation marks omitted] ). Despite the fact that transfer would be “the ordinary course of action,” the Court declined to transfer the case because “it is far from clear that transfer of this case would be in the interest of justice. While defendants insist [p]laintiff has waived any right to rely on the forum selection clause, plaintiff's terse opposition suggests otherwise. Accordingly, out of an abundance of caution, a simple dismissal, rather than transfer, is appropriate” (id. at 8).

Plaintiff commenced this action in Supreme Court, Albany County, on October 2017, shortly before the District Court dismissed the federal action.

Analysis

 Forum Selection Clause

Defendants argue that plaintiff waived enforcement of the forum selection clause when it commenced an action on the contract in the District Court for the Northern District of New York. But because defendants have not demonstrated that plaintiff intentionally took action inconsistent with the forum selection clause, the Court cannot conclude that plaintiff waived the benefit of that clause.

“Forum selection clauses ․ are prima facie valid because they provide certainty and predictability in the resolution of disputes” (Sterling Natl. Bank v. E. Shipping Worldwide, Inc., 35 A.D.3d 222, 222, 826 N.Y.S.2d 235 [1st Dept. 2006] [internal citations and quotation marks omitted] ). A waiver is an “intentional relinquishment of a known right and should not be lightly presumed' ” (Piacente v. Bernstein, 127 A.D.3d 1365, 1366, 6 N.Y.S.3d 793 [3d Dept. 2015] [emphasis added], quoting Gilbert Frank Corp. v. Fed. Ins. Co., 70 N.Y.2d 966, 968, 525 N.Y.S.2d 793, 520 N.E.2d 512 [1988] ).

Defendants have not presented any binding precedent in support of their argument that plaintiff's commencement of the action in the federal district court in New York operates as an absolute waiver of plaintiff's right to invoke the forum selection clause. Instead they rely on federal decisions holding that, where a party “disregards a forum selection clause and sues on a contract in an unauthorized forum, it waives the forum selection clause ․” (Unity Creations, Inc. v. Trafcon Indus., 137 F.Supp.2d 108, 110 [E.D. N.Y. 2001]; Pirolo Bros., Inc. v. Maffei, 1989 WL 20945, *, 1989 U.S. Dist. LEXIS 2022, *4 [S.D. N.Y. Mar. 2, 1989, No. 87 Civ. 7561 (MBM); see also Dart Mech. Corp. v. Johnson Controls, Inc., 2013 WL 5937424, 2013 U.S. Dist. LEXIS 157777 [E.D. N.Y. Nov. 4, 2013, No. 13–CV–2941(JS/WDW) ] ).

In Pirolo Bros., Inc., the forum selection clause required suits for breach of a contract between the parties to be brought in Italy (1989 WL 20945, *, 1989 U.S. Dist. LEXIS 2022, *1). The defendant moved to dismiss based on the forum selection clause (id.). The District Court for the Southern District of New York dismissed the action because, although the plaintiff had brought an earlier suit in New York, it waived enforcement of the forum selection clause only with respect to issues raised in the Italian litigation (id. at *, 1989 U.S. Dist. LEXIS 2022, at *4–*5). Pirolo Brothers., Inc. based its assertion that a party that “disregards a forum selection clause and sues on a contract in an unauthorized forum ․ waives the forum selection clause” on three decades-old Appellate Division decisions and one Supreme Court decision that addressed questions related to agreements to arbitration, not forum selection clauses (see 1989 WL 20945, *, 1989 U.S. Dist LEXIS 2022, *4).1

In Unity Creations, Inc. v. Trafcon Indus., the parties' contract contained a forum selection clause designating Supreme Court, Suffolk County as the exclusive forum for resolution of disputes (Unity Creations, Inc. v. Trafcon Indus., 137 F.Supp.2d 108, 110 [E.D.N.Y. 2001] ). The plaintiff commenced an action in Supreme Court, Nassau County because “its corporate offices mov[ed] there during the life of the contract” (id. at 111). After the defendants removed the case to federal court, the plaintiff moved to remand (id. at 110). Quoting Pirolo Brothers, Inc. for its recitation of New York law, the District Court denied the motion for remand, holding that “[u]nder these circumstances, it is appropriate to deem the Plaintiff to have waived the benefits of the clause for the purpose of this action” (id. at 112).2

The District Court cases and the New York cases on which they rely do not impose any bright line rule that commencement in another forum equates to a waiver as a matter of law. Nor do they abrogate the black letter law that a waiver must be intentional. In both Pirolo Brothers, Inc., and Unity Creations, Inc., the intention of the parties to waive the forum selection clause was implied by their choice to bring an action in a jurisdiction that was unequivocally different from the one specified in the forum selection clause: New York instead of Italy and Nassau County instead of Suffolk County, respectively.

Such intent cannot be inferred here, where plaintiff did not “disregard” the forum selection clause when it initially filed its action in a federal district court in New York, rather than a New York State court. Although, as the District Court held, case law defines “ordinary courts of New York” as referring only to state courts, the forum selection clause here does not explicitly confine the proper forum to State, as opposed to federal, courts in New York. Further, plaintiff in its federal complaint, invoked the very forum selection clause that defendants argue plaintiff waived by commencing that action. And after defendants filed their motion to dismiss in the federal action, but before the District Court dismissed the complaint, plaintiff commenced this action, again citing the forum selection clause as the basis for the Court's personal jurisdiction.3 The implication is that, far from intentionally taking action inconsistent with the forum selection clause, plaintiff was in fact attempting to enforce the clause when it mistakenly filed the action in a federal district court in New York.

 Forum Non Conveniens

Defendants argue that, even if plaintiff had not waived the forum selection clause, the complaint should be dismissed in the “interest of substantial justice” because New York is an inconvenient forum for resolution of this dispute (see CPLR 327). “It is well established that forum selection clauses are valid absent a showing that enforcement would be unreasonable and unjust or that the clause is invalid because of fraud or overreaching” (Tatko Stone Prods., Inc. v. Davis–Giovinzazzo Constr. Co., Inc., 65 A.D.3d 778, 779, 883 N.Y.S.2d 665 [3d Dept. 2009]; see 3H Enters. v. Bennett, 276 A.D.2d 965, 715 N.Y.S.2d 90 [3d Dept. 2000], lv denied 96 N.Y.2d 710, 726 N.Y.S.2d 373, 750 N.E.2d 75 [2001] ). The United States Supreme Court has held that, in order for a party to be relieved of a forum selection clause based on inconvenient forum, that party must demonstrate that “trial in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court. Absent that, there is no basis for concluding that it would be unfair, unjust, or unreasonable to hold that party to his bargain” (The Bremen v. Zapata Off–Shore Co., 407 U.S. 1, 18, 92 S.Ct. 1907, 32 L.Ed.2d 513 [1972] ). A motion to dismiss based on inconvenient forum is committed to the discretion of the Court (see Natl. Bank & Trust Co. v. Banco de Vizcaya, S. A., 72 N.Y.2d 1005, 534 N.Y.S.2d 913, 531 N.E.2d 634 [1988] ).

Here, defendants have not demonstrated “a compelling and countervailing reason for excusing enforcement of this bargained-for forum selection clause” (Tourtellot v. Harza Architects, Engrs. & Constr. Mgrs., 55 A.D.3d 1096, 1099, 866 N.Y.S.2d 793 [3d Dept. 2008]; see Stravalle v. Land Cargo, Inc., 39 A.D.3d 735, 736, 835 N.Y.S.2d 606 [2d Dept. 2007] ). Defendants drafted the contract that contains the forum selection clause and have not alleged that they were subjected to fraud or overreaching (see Tatko Stone Prods., Inc., 65 A.D.3d at 779, 883 N.Y.S.2d 665). Nor have they offered evidence that trial in New York would effectively deprive them of their day in court (compare 3H Enters., 276 A.D.2d at 967, 715 N.Y.S.2d 90 [“both defendants are senior citizens who suffer from health problems which make it difficult and inadvisable to travel” to New York from Florida], lv denied 96 N.Y.2d 710, 726 N.Y.S.2d 373, 750 N.E.2d 75 [2001] with Tatko Stone Prods., Inc., 65 A.D.3d at 779, 883 N.Y.S.2d 665).

 Fourth Cause of Action: Quantum Meruit/Unjust Enrichment

“The existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter” (Clark–Fitzpatrick, Inc. v. Long Is. R. Co., 70 N.Y.2d 382, 388, 521 N.Y.S.2d 653, 516 N.E.2d 190 [1987] ). Here, plaintiff argues that dismissal of its unjust enrichment cause of action is not warranted because it was pleaded in the alternative, if the Court were to invalidate the contract between the parties. Because defendants have moved to dismiss pre-answer, whether they will seek to invalidate the contract is unknown. Accordingly, the motion is denied as premature, without prejudice to renew (compare id. at 89 [dismissal of unjust enrichment claim appropriate where neither party disputed the validity of a contract]; Tompkins Fin. Corp. v. John M. Floyd & Assoc., Inc., 144 A.D.3d 1252, 1257, 41 N.Y.S.3d 577 [3d Dept. 2016] [dismissing the defendant's counterclaim for unjust enrichment after holding that contract was valid and enforceable] ).

 Fifth Cause of Action: Fraudulent Inducement

Defendants argue that the fraud alleged by plaintiff “relates” to the alleged breach of contract, rendering this cause of action redundant or duplicative. “A fraudulent inducement cause of action requires proof that the defendant made a misrepresentation that was known to be false and made with the purpose of inducing the plaintiff to enter a contract, justifiable reliance on the false representation and related damages” (Luckow v. RBG Design–Build, Inc., 156 A.D.3d 1289, 1293, 68 N.Y.S.3d 549 [3d Dept. 2017] ). A fraudulent inducement claim is not duplicative of a breach of contract claim where the complaint alleges that a defendant purposely induced a plaintiff to enter into a contract with a knowingly false representation of intent to perform a future act collateral to the contract (id.; see Deerfield Communications Corp. v. Chesebrough–Ponds, Inc., 68 N.Y.2d 954, 956, 510 N.Y.S.2d 88, 502 N.E.2d 1003 [1986] ). The complaint must state the misrepresentations with particularity (Luckow, 156 A.D.3d at 1293, 68 N.Y.S.3d 549).

Here, considering the complaint liberally and giving plaintiff the benefit of all reasonable inferences (see Leon v. Martinez, 84 N.Y.2d 83, 87, 614 N.Y.S.2d 972, 638 N.E.2d 511 [1994] ), the cause of action for fraudulent inducement is not redundant. The complaint alleges that defendants induced plaintiff to accept lesser payments than specified in the parties' contract by promising to provide plaintiff with future work, despite the fact that defendants had no intention of fulfilling its promise. Plaintiff has not alleged that defendants did not intend to perform the contract when they entered into it, but that they induced plaintiff to suffer damages as a result of a promise collateral to the contract (compare Brumbach v. Rensselaer Polytechnic Inst., 126 A.D.2d 841, 843, 510 N.Y.S.2d 762 [3d Dept. 1987] ). In other words, whether defendants breached the parties' contract causing damage to plaintiff is not dispositive of plaintiff's fraudulent inducement claim.

Accordingly, it is

Ordered that defendants' motion to dismiss the complaint is denied in its entirety.

This constitutes the decision and order of the Court. The original decision and order is being transmitted to plaintiff's counsel. All other papers are being transmitted to the County Clerk for filing. The signing of this decision and order does not constitute entry or filing under CPLR 2220 and counsel is not relieved from the applicable provisions of that rule respecting filing and service.

FOOTNOTES

1.    Pirolo Brothers, Inc. cited Armco Steel Corp. v. Renago Constr., Inc. 34 A.D.2d 887, 888, 312 N.Y.S.2d 161 [4th Dept. 1970] [party waived right to enforce arbitration clause when it took action that was “clearly inconsistent” with that clause], lv denied 27 N.Y.2d 483, 314 N.Y.S.2d 1025, 262 N.E.2d 555 [1970]; Unicon Mgt. Corp. v. Pavcrete Constr. Corp., 23 A.D.2d 837, 259 N.Y.S.2d 598 [1st Dept. 1965] [participation in arbitration disqualified party from seeking to stay arbitration]; Perrin v. Stempinski Realty Corp. 15 A.D.2d 91, 93, 222 N.Y.S.2d 151 [1st Dept. 1961] [party's submission of questions to arbitrator acted as concession that questions were arbitrable, despite party's prompt withdrawal of arbitration request], appeal dismissed 11 N.Y.2d 931, 228 N.Y.S.2d 683, 183 N.E.2d 85 [1962]; Bd. of Educ. v. Brentwood Teachers Assoc., 79 Misc. 2d 758, 764, 361 N.Y.S.2d 570 [Sup. Ct., Suffolk County 1974] [filing of action for preliminary injunction and failure to proceed through arbitration process amounted to waiver of right to arbitrate] ).

2.    Unity Creations, Inc. offered one additional case in support. In that case, the District Court for the Southern District of New York stated that “ ‘a forum selection clause will be deemed waived if the party invoking it has taken actions inconsistent with it, or delayed its enforcement, and other parties would be prejudiced’ ” (Matter of Rationis Enterprises, Inc., 1999 WL 6364, at *2, 1999 U.S. Dist. LEXIS 34, at *14 [S.D.N.Y. 1999], quoting Matter of Deleas Shipping, Ltd., 1996 A.M.C. 434 [W.D. Wash. 1995] ).

3.   The District Court declined to transfer the federal action to Texas, which would have been “the ordinary course of action under similar circumstances,” in spite of defendants' argument that plaintiff had waived the forum selection clause.

Denise A. Hartman, J.

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